Fed officials urge patience on timing of first interest rate cut

News | May 21, 2024
FILE PHOTO: Federal Reserve Governor Christopher Waller poses before a speech at the San Francisco Fed

By Pete Schroeder and Howard Schneider

WASHINGTON/AMELIA ISLAND, Florida (Reuters) -Two Federal Reserve policymakers on Tuesday said it was prudent for the U.S. central bank to wait several more months to ensure that inflation really is back on a path to the 2% target before commencing interest rate cuts.

“In the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy” Fed Governor Christopher Waller said in a speech to the Peterson Institute for International Economics in Washington.

The Fed has kept its benchmark policy rate in the 5.25%-5.50% range since last July and, stung by three months of stronger-than-expected inflation readings from January to March, is only cautiously welcoming more recent encouraging signs of a loosening in the labor market and return to further progress in lowering inflation toward its 2% target rate.

In further comments after the speech, Waller said the Fed wanted to see demand soften as he also put a pin in speculation that interest rates may need to rise again, saying the latest inflation data is “reassuring” and the central bank’s policy rate is set appropriately.

“We just don’t want to go off a cliff, that’s the critical thing. We are not seeing anything right now that looks like staying here for three or four months is going to cause the economy to go off a cliff,” Waller said.

Traders currently expect the central bank to deliver a first rate cut in September and see better-than-even odds of a second cut at the Fed’s final meeting of the year in December.

In a separate appearance, Atlanta Fed President Raphael Bostic struck a similar tone, noting the central bank needs to be cautious about approving its first rate cut to be sure it does not touch off pent-up spending among businesses and households, and put policymakers in a position where inflation reaccelerates.

“It is in our interest to not start bouncing around … For me, I’d rather wait longer to make sure that doesn’t happen,” Bostic said in comments to reporters on the sidelines of an Atlanta Fed conference in Florida, adding that he still expects inflation to edge lower through the year with a single rate cut being appropriate in the fourth quarter.

“I’m not in a hurry to cut rates,” Bostic said. “We need to make sure that when we start on that path, it’s unambiguous that inflation is going get to 2% … the existence of this potential exuberance means that we have to be very cautious about when we do that first move, and it may mean that it has to happen later.”

(Reporting by Pete Schroeder, Howard Schneider; writing by Ann Saphir and Lindsay Dunsmuir; Editing by Paul Simao)